Court fight looms over property transfer tax in Los Angeles

A court fight looms between landlords and housing advocates over a new property transfer tax earmarked for CRE transactions in Los Angeles.

The property transfer tax, known as Measure ULA, approved by city voters in November and scheduled to go into effect in April, will add a 4% tax on real estate transactions over $5 million, and the rate will increase to 5.5% on transactions over $10 million. . The new transfer tax would be added to the existing Los Angeles transfer tax of 0.45%

The ballot initiative Measure ULA, which passed by a margin of 58% to 42% of city voters, specifies that the revenue generated from the new transfer tax will go directly into a new Los Angeles House Fund. that it will “allocate revenue to projects that address housing availability.” at certain income thresholds and homelessness prevention.”

The new tax applies to all commercial and residential property transactions (property that is sold or transferred) in Los Angeles. City officials estimated that the tax will generate more than $1 billion a year for the special housing fund.

Late last month, a landlord group known as the Greater Los Angeles Apartment Association and a group calling itself the Howard Jarvis Taxpayers Association filed a lawsuit challenging Measure ULA, alleging that the state constitution prohibits cities or counties designate the transfer of tax real estate for special purposes.

“If the Measure ULA tax increase is imposed as scheduled on April 1, 2023, great and irreparable harm will be done to all property owners in Los Angeles by being forced to pay unconstitutionally imposed taxes,” the lawsuit stated. the opponents.

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Housing advocates who support Measure ULA responded by saying that the legal challenge of the new transfer tax is baseless.

“The California Supreme Court has made clear that our power as citizens to place the measure on the ballot is broad, and at least four recent Appeals Court decisions have made it clear that City Charters cannot limit the power of initiative to propose special proposals. taxes,” Laura Raymond, campaign co-chair for Measure ULA, said in a statement.

The battle lines are already forming in the fight over Measure ULA, which supporters say is the largest housing ballot initiative ever adopted in the US. Proponents estimate the new tax could fund 26,000 new housing units. housing for the next decade.

Shortly after the lawsuit was filed, the Southern California News Group, which owns 11 area newspapers including the Los Angeles Daily News and the Orange County Register, published an editorial in all of its newspapers calling the transfer tax “a massive appropriation of money” that will discourage new housing development rather than support it.

The city’s largest newspaper, the LA Times, published an editorial this week endorsing Measure ULA and urging the courts to quickly resolve the constitutional issue raised by opponents.

The Times suggested the new tax would hit “only a small percentage of property sellers” and give a big boost to what the city’s new mayor, Karen Bass, has called her top priority: combating the homeless crisis. home in Los Angeles.

“Clearly, voters wanted something big and fast done to create more affordable housing in a city that has fallen behind year after year in its production,” the Times editorial said.

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Expressing hope that Measure ULA will survive court challenge, however, the city’s largest newspaper conceded that the courts may have to create an exemption to Proposition 13, an amendment to the state constitution adopted in 1978 that prohibits a city or county from designating a real estate transfer tax for a special purpose, such as building affordable housing.

The courts have upheld the city’s right to collect transfer taxes as general revenue, so the sticking point will be the legality of the House LA Fund.

The Howard Jarvis Taxpayers Association is named for Howard Jarvis, a businessman who ran unsuccessfully for mayor of Los Angeles several times and later spearheaded a petition drive that put the Proposition 13 initiative in the state ballet in 1978. .

The Prop 13 initiative, passed during the double-digit inflation of the late 1970s, adjusted property taxes to set them at 1% of the property’s purchase price.

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